Fairtrade certification of sugar cane in Fiji: an economic assessment Pacific Value Chains Conference 17-19 April 2013 Jonathan Bower, SPC
Context and Policy Questions The first Fairtrade certification in Fiji was completed for sugar in Vanua Levu in early 2011; 4.2 million FJD were paid in 2011 and 3.9 million FJD in 2012 Two economic impact assessments were conducted in 2012 and 2013 on the following: Do the benefits of Fairtrade certification exceed the costs? Is it worth extending Fairtrade certification to the other sugar mills? Under what conditions is Fairtrade certification likely to be an economically beneficial option in the Pacific region? How does Fairtrade certification impact on profitability of sugar cane?
Fiji sugar industry: Revenue to growers (million FJD) 200 180 160 140 120 100 80 60 40 20 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Growers' share of proceeds ($m)
Study 1: What is Fairtrade certification A Small Producer Organisation (SPO) is set up Labasa Cane Producers Association to represent growers The SPO receives and administers Fairtrade Premium Funds, democratically The Fairtrade Premium funds are paid by the buyer (Tate and Lyle Sugars Ltd) to the SPO Certification and regular audits conducted by Fairtrade Labelling Organisation. The SPO ensures certification standards are met Funds are not transferred directly to farmers but are spent on various benefits
Cost benefit analysis Quantifies as many benefits and costs of a project as possible, over full relevant time period Adds up the benefits and costs over time The result is the Net Present Value, which is a measure of how much the project contributes Standard practice for project design and selection in many governments
Benefits of Fairtrade certification Economic: Subsidy to inputs e.g. fertiliser, cane knives, replanting costs Community projects may provide public goods with economic benefits Social Democratic representation for growers Community projects may provide social benefits Environmental Phasing out of internationally banned chemicals e.g. weedicide and fertiliser Safe storage of chemicals and associated health benefits Sanitation and safe water provided
Costs of Fairtrade certification Farmer time spent in Fairtrade training sessions Farmer time spent in LCPA meetings Farmer travel to and from LCPA meetings and trainings Cost of Fairtrade audit Cost of LCPA secretariat
Study 1: Results Cost savings to farmers in 2011 of minimum 1.7 FJD/tonne of cane due to Fairtrade, expected to be higher subsequently
Study 2: Impact of Fairtrade certification on profitability Sugar cane farming is not profitable with or without Fairtrade certification, assuming 45 tonnes per hectare If yield is increased by 33% to 60 tonnes per hectare, sugar cane becomes profitable at 13km from the mill without Fairtrade Fairtrade extends this distance by 11km, making 2,222 additional farmers profitable, assuming 2FJD/tonne of benefits
FJD$ Profit with and without Fairtrade Cane is profitable at 24km from the mill with Fairtrade, assuming benefits to farmers of 2 FJD/tonne, representing an additional 2,222 growers who become profitable $2 500 $2 000 $1 500 $1 000 Profit/ha without Fairtrade Profit/ha Fairtrade @$2/t Profit/ha Fairtrade @$3/t $500 $0 -$500 0 5 10 15 20 25 30 35 40 45 50 -$1 000 -$1 500 -$2 000 -$2 500 -$3 000 Distance from mill (km)
Further observations Fairtrade certification works for sugar because of the large volumes and sufficiently large Premiums coupled with fixed costs of running an SPO and staying certified Democratic model for SPOs worked for Vanua Levu due to large number of farmers used to the Sugar Cane Growers Council; may not work for other parts of the Pacific for cultural reasons (Oxfam 2012) Premiums worked flat rate of 106FJD/tonne of sugar; minimum price may have no impact if it is set lower than the market rate As a result, Fairtrade certification was not appropriate for vanilla production in Vanuatu
Thank you TANGIO TUMAS/TENKYU TRU/THANK YOU/VINAKA VAKALEVU/SULANG/KO RABWA/TUBWA KOR/MALO 'AUPITO/FA'AFETAI TELE LAVA/MERCI BEAUCOUP/KIA MANUIA/KIAORA KOE/KOMOL TATA/FAKAUE LAHI/SI YU'US MA'ÅSE /TEKE RAOI/KALANGAN/FAKAFETAI Jonathan Bower Resource Economist, Land Resources Division Secretariat of the Pacific Community jonathanb@spc.int +679 337 0733 ext 35425 lrdeconomics.wordpress.com Also available from information and networks tab at www.spc.int/lrd